Still unable to get a partition up and running.
This is what I did last night after receiving further advise.
I deleted the partition and then reallocated the space to C:, then started over.
I created a 60GB partition K: but this time instead of formating it in NTFS I had an option to do so in ex fat, so choose this, proceeded to install XP but partition is still not recognized in the set up, ( same issue as before ).
The thinking behind this was during the XP home upgrade partition set up I have to insert a Window 98SE disk for previous OS installation, (98SE wouldn't recognize NTFS hence the fat format on the partition--------well it made sense to me and it might have worked,
Still not to be defeated, I deleted the partition again, reallocated, created FAT partition but didn't format, and tried to re-install XP, ( but no joy, getting the same issue).
I'm flummoxed, either I can create a Fat 32 bit partition within/under Win 7 or I can't.
Some further advise was to reinstall Win XP over Win 7 RC and create a partition within XP for Win 7,.........but I'm so not sure on this approach as I have got Win 7 working just great and it's a lot of fussing around.
Is the problem the two different file systems on the same HD, as I wrote I can see the K: partition in Disk management and My Computer, I might be missing a step but I don't think I'm doing anything wrong.